Allergan sale to Actavis thwarts takeover attempt by Valeant

By By Stuart Pfeifer and Sarah Parvini

Nov 17, 2014 | 8:30 PM

Allergan Chief Executive David E.I. Pyott said the deal with Actavis placed his company in the hands of a “good steward” that would retain its commitment to research and development. Above, Pyott at the New York Stock Exchange. (Richard Drew / Associated Press)

Botox maker Allergan Inc., an Irvine company that started as a purveyor of eye drops and grew into one of the most respected pharmaceutical companies in the country, agreed to be acquired by Irish firm Actavis for $66 billion.

The deal thwarts a contentious takeover attempt by Valeant Pharmaceuticals International Inc., a Canadian company that had vowed to slash Allergan's research and development spending and lay off thousands of its 11,000 workers. If approved by shareholders, the sale to Actavis would end decades of local ownership of Allergan.

Actavis, with U.S. headquarters in New Jersey, agreed to pay about $219 a share for Allergan, effectively pricing out Valeant, which had bid about $54 billion, or $183 a share.

Investors cheered Monday's deal, driving up Allergan shares to an all-time high. The stock gained $10.55, or 5%, to $209.20.

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Allergan employees were also thrilled with the deal, which will probably result in far fewer job cuts than Valeant had planned. Actavis Chief Executive Brent Saunders said the company would retain a significant presence in Irvine.

"It's a better feeling with Actavis," said an Allergan research-and-development employee, who asked not to be identified because he was unauthorized to speak to the media. "We all know Valeant's model was to come in and remove everything. We prefer the white knight [Actavis]."

The deal is expected to close in the first half of next year.

Founded in 1950 with a focus on drops to treat eye inflammation, Allergan is best known for its Botox wrinkle treatment. The company also sells Restasis, the only prescription drug to treat chronic dry eye; Latisse, a prescription drug that creates thicker eyelashes; and Natrelle breast implants. Allergan reported more than $6 billion of revenue in 2013 and is on pace to top that this year.

Valeant partnered with hedge fund manager Bill Ackman in the attempted takeover, arguing that Allergan spent too heavily on research, which dragged down profits. It made its first offer to acquire Allergan in April and increased the bid in June. Allergan's board rejected the offers as too low.

Valeant had scheduled a Dec. 18 vote of Allergan shareholders to remove a majority of the company's board and replace them with directors who might approve the sale.

Valeant said Monday it was unlikely to continue efforts to acquire the Irvine company.

"Valeant cannot justify to its own shareholders paying a price of $219 or more per share for Allergan," J. Michael Pearson, Valeant's chairman and chief executive, said in a statement.

Allergan Chief Executive David E.I. Pyott said the deal placed his company in the hands of a "good steward" that would retain its commitment to research and development. He declined to say whether he would stay with Actavis after the sale.

Irvine Mayor Steven Choi said he was pleased that Allergan's friendly merger would probably spare jobs in his city, which prides itself on a rock-bottom crime rate, quality housing and low unemployment.

"I think the impact on our city will be less than what we were afraid of with Valeant," Choi said. Saunders said he does not know yet how many jobs would be cut, but said Actavis is "absolutely committed to our presence in Orange County and Southern California." He said the company has not decided whether it would retain the Allergan brand.

"We look forward to working with the people of Allergan to come up with the right structure and the right approach to the synergies and the cuts," Saunders said.

The deal tempered what could have been another setback for Southern California's employment picture. This year, Toyota Motor Corp. announced it would move about 3,000 sales, marketing and other jobs from Torrance to a newly established North American headquarters in Plano, Texas. In February, Occidental Petroleum ended a nearly century-long run as a storied Los Angeles energy company and moved its headquarters to Houston.

"It is much better than a company packing up and taking its employment base," said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. "Compared with Toyota in Torrance, this is just some trimming that is inevitable."

Several analysts also supported the deal.

"I think it's the best outcome for Allergan shareholders, among the choices," said David Maris, an analyst with BMO Capital Markets. "Actavis is getting wonderful brands, brands that have huge competitive advantages."

Sterne Agee analyst Shibani Malhotra said she thought Actavis — which merged with Corona-based Watson Pharmaceuticals Inc. in 2012 — is a better fit than Valeant.

"It's a sad day because there's no more Allergan," she said. "Allergan was probably the best run pharmaceutical company in our space, with a very strong management team."

"We understand that shareholders want to see returns near term, which Allergan may not have been able to deliver without this deal."

Valeant's bid for Allergan was one of the most contentious and closely watched takeover attempts this year. In August, Allergan filed an insider-trading lawsuit against Ackman, contending that his firm unlawfully bought nearly 10% of Allergan's shares without disclosing that it knew about Valeant's plans. Ackman denied wrongdoing.

Pyott vowed Monday to move forward with the lawsuit: "At the end of the day a large number of Allergan shareholders, in my view, were defrauded."